CWS Market Review – May 6, 2025

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Over the weekend, Warren Buffett announced that he’s stepping down as CEO of Berkshire Hathaway. On January 1, Greg Abel will take over. Berkshire’s board unanimously approved Buffett’s suggestion. Buffett is 93 years old.

Yesterday, the A shares of Berkshire fell $40,000. I guess that’s a good sign of Wall Street’s respect for Buffett.

Buffett’s track record is simply amazing. Since 1965, Berkshire has gained 5.5 million percent while the S&P 500 has gained a measly 39,000%. That means that if Berkshire fell by 99% tomorrow, it would still be outperforming the market.

Until the big sector rotation earlier this year, CWS had (barely) outperformed Berkshire over a seven-year run. As for the other 60 years, ol’ Warren’s got a big edge.

To be fair, most of Berkshire’s really big years came decades ago. Even Buffett has conceded that his portfolio won’t do as well as it did. Before Monday’s big drop, one share of Berkshire was worth more than $800,000.

I wish Mr. Buffett a happy retirement.

Yesterday, the stock market snapped its nine-day winning streak. The decline wasn’t that bad (-0.64) but it was the first daily drop since April 21.

On Friday, the Labor Department said that the U.S. economy added 177,000 nonfarm payrolls last month. That news surprised Wall Street. Economists had been expecting an increase of just 133,000.

The figure for March was revised lower by 43,000 to 185,000. The February number was lowered by 15,000.

The unemployment rate held steady at 4.2%, which is low by historic standards. In fact, the unemployment rate last month was lower than every single month from 1971 to 1998.

The key stat I like to watch is average hourly earnings. After all, worker pay eventually translates to revenue for a company. Last month, average hourly earnings rose by 0.3% which was 0.1% below expectations. Over the last year, average hourly earnings increased by 3.8% which isn’t much higher than inflation.

The labor force participation rate increased to 62.6% and the broader U-6 rate dropped to 7.8%. Wall Street has been looking hard for signs of the impact of tariffs but so far, it hasn’t found anything.

Here are some details:

Health care continued to be a leader in job creation, adding 51,000 jobs. Other sectors posting gains included transportation and warehousing (29,000), financial activities (14,000), and social assistance.

The federal government reported a loss of 9,000 jobs on the month amid Trump’s efforts, led by Elon Musk and the Department of Government Efficiency, to trim payrolls in the public sector. Federal government jobs have declined by just 26,000 since January, as employees furloughed but still receiving severance are not counted as unemployed, according to the BLS.

Manufacturing saw a slight loss of 1,000 jobs as well.

President Trump took to Truth Social, “Consumers have been waiting for years to see pricing come down. NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!”

He may get his rate cut soon. The Federal Reserve began its two-day meeting today. The Fed will release its policy statement tomorrow afternoon. I don’t expect to see a rate cut this time, but one may be coming at the Fed’s June meeting, in six weeks.

Traders currently place the odds of a rate cut next month at 68%. All told, traders see the Fed lowering rates by a total of 0.75% by the end of the year. At the June meeting, the Fed will also update its economic projections for the next few years.

Does Job Growth Tell Us When Recessions Are?

I was curious to see how changes in nonfarm payrolls have historically aligned with recessions and expansions.

I reviewed the last 1,000 months’ worth of data. Of those 1,000 months, job growth was negative 219 times. Of those 219 months, the U.S. economy was in a recession for 113 months which is about half the time.

Even when the economy is shedding jobs, that only indicates a roughly 50% chance that the economy is officially in a recession.

For April, job growth was 0.11% which comes in 616th out of the last 1,000 months. The important takeaway is that recessions almost never line up with that type of job growth. To get a real recession, you need more than job losses – the economy needs to be shedding jobs.

Looking at the data, it seems that job growth of -0.13% is the turning point. In today’s terms, that’s a loss of 207,00 jobs. Of the last 1,000 months, there have been 125 months with that level of job losses, and 71% of those months have come during a recession.

Just going by the jobs report, the economy very likely isn’t in a recession. The next big test for the market comes a week from today when the government releases its CPI report for April. The last report showed a tiny bit of deflation.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on May 6th, 2025 at 5:51 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.